Photography: Boris Heger/reportdigital.co.uk
Between 10 and 38 million more workers will become unemployed worldwide during 2009, according to the latest forecasts from the International Labour Organization (ILO). Many of these jobs will be lost in developed countries – the United States shed 4.1 million jobs between February 2008 and 2009, and the count continues to increase.
But these figures do not tell the whole story. In most developing countries, unemployment is only a partial indicator of the health of the labour market because many jobs are informal, characterised by no social or legal protection, high-risk exposure and low pay. Informal employment is already at record levels worldwide: according to the Organisation for Economic Co-operation and Development (OECD), 1.8bn people – more than half of the global labour force – are working without a formal labour contract and social security.
Informal employment includes both employees without contracts and the self-employed. Without legal employment protection or access to social security and unemployment benefits, informal workers are vulnerable in times of crisis. Often the first to be laid off in a pinch, livelihoods are threatened by global drops in demand. For example, the price that waste-pickers in Ahmedabad, India, received for used newspapers or recovered nuts and bolts halved between October 2008 and January 2009.
The share of informal workers is projected to grow to two-thirds of the workforce by 2020, under stable population trends and growth patterns. If more jobs are lost to the economic crisis and more migrants return home to informal-sector jobs, this rather gloomy prospect may turn out to be overly optimistic. And restoring growth will not be enough. Even during good times, with robust growth rates, informal employment increased in many developing countries. Though the economy grew at more than 5% for the last decade, 9 out of 10 employees (approx. 370 million people) do not have formal social security.
Implications for policies
What does this mean for policies? First, the old paradigm of trying to coerce the informal economy into formalising should be given up. Macroeconomic policies need to foster the creation of more and better jobs throughout the economy. Fiscal stimuli should be broad-based so as to also benefit the informal economy. Regulation that allows for ‘progressive formalisation’ is needed, enabling those working informally to gradually integrate into more formal structures.
In practice, this means providing basic services and a voice to informal economic actors. For example, providing street-food vendors with dedicated spaces, access to tap water, waste collection and a simplified registration, as occurs in Singapore. Secondly, expanding social protection floors and increasing the availability of risk mitigation tools for informal workers is important in reducing vulnerability. Extending health insurance coverage, for example, can help prevent the serious illness that can be the factor that pushes a family back into poverty. And it is feasible: Thailand extended health insurance coverage to an additional 14 million people within a decade. Such measures are highly complementary to poverty alleviation interventions such as public works programmes, employment guarantee schemes or conditional cash transfers.
Third, policy-makers must make formality worth the trouble. Providing better public services, easing access to credit, strengthening the reliability of courts, and reducing the cost of complying with tax obligations and product market regulation all contribute to increasing the benefits of doing business formally. For the world’s poor, working informally is often the only way to participate in the labour market. The challenge is to provide them with the tools to move into better jobs. Fostering the poor’s mobility, through active labour-market policies, such as training and skills development, better infrastructure, institutional reform and access to resources for informal businesses will all improve the performance of labour markets after the crisis.
These measures require a major fiscal effort on the part of developing countries. The pay-off will be wider fiscal bases, more efficient economies and cohesive societies. Developed countries need to support them by honouring their commitments to increase aid disbursements and by renouncing the rising tide of protectionism and deglobalisation. Restoring growth with better jobs is everybody’s business.
Johannes P. Jutting is Head of the Poverty Reduction and Social Development Unit at the OECD Development Centre . Juan R. Laiglesia is an economist at the centre
